•

From a developer’s perspective, construction project

management for a full turnkey EPC contract will be Figure 21: O&M Workers at a Large-scale Solar PV Power
significantly less onerous than that required for a Plant

multi-contract approach.

• An EPC contract is nearly always more expensive than

an equivalent, well-managed multi-contract approach.

• A multi-contract approach gives the developer greater

control over the final plant configuration.

• EPC avoids interface issues between contractors and

shifts risks to the EPC contractor instead of the project
developer.

Regardless of the contract strategy selected, there are a

number of key activities that will need to be carried out,
either by the developer or a contractor. These activities are
described in the following sections.
Image courtesy of First Solar
Typical EPC contract terms may be found in Annex 2:
Contract Heads of Terms.
that requires on-going supervision. To some extent
10.3 INTERFACE MANAGEMENT interfaces between the project and its surroundings (for
example, grid connection) will remain the responsibility
Interface management is of central importance to the
of the developer. Furthermore, in many countries legal
delivery of any complex engineering project, and solar
responsibility will remain with the developer regardless
PV projects are no exception. The main interfaces to be
of the form of contract that is put in place with the
considered in a solar PV project are listed in Table 18. It
contractor.
should be noted that the interfaces may differ, depending
on the contracting structure and specific requirements of If a turnkey EPC strategy is chosen, then a contractor
particular projects. with a suitable track record in the delivery of complex
projects should be selected to minimise this type of legal
For a multi-contract strategy, the developer should
risk. Information should also be sought from potential
develop a robust plan for interface management. This
contractors on their understanding of the project
plan should list all project interfaces, describe which
interfaces and their proposed approach to managing them.
organisations are involved, allocate responsibility for each
interface to a particular individual, and explicitly state
10.4 PROGRAMME AND SCHEDULING
when the interface will be reviewed. In general, design and
construction programmes should be developed to minimise A realistic and comprehensive construction programme is
interfaces wherever possible. a vital tool for the construction planning and management
of a solar PV project. The programme should be
Opting for a turnkey EPC contract strategy will, in sufficiently detailed to show:
effect, pass the onus for interface management from
• Tasks and durations.
the developer to the EPC contractor. But interface
management will remain an important issue and one • Restrictions placed on any task.

10: Construction 113

 Table 18: Solar PV Project Interfaces
Item Element Organisations Interface / Comments
1 Consents/Permits • All contractors Monitoring of compliance with all consent conditions and
• Landowner permits.
• Planning authority
2 Civil Works • Civil contractor Site clearance. Layout and requirements for foundations,
• Mounting or tracking system supplier plinths, hardstandings, cable trenches, earthing, ducts,
• Central inverter supplier roads and access tracks.
• Electrical contractor
• Grid connection contractor
• Security contractor
• Installation/crane contractor
3 Security • Civil contractor Layout of the security system, including power cabling
• Electrical contractor and communications to the central monitoring system.
• Security contractor
• Communications contractor
4 Module Mounting or Tracking • Mounting or Tracking system supplier Foundations for the mounting or tracking system,
System • Civil contractor suitability for the module type and electrical connections,
• Module supplier and security of the modules. Earthing and protection of
• Electrical contractor the mounting or tracking system.
5 Inverter • Civil contractor (for central inverters) Foundations for larger central inverters, or suitability
• Mounting system supplier (for string for the mounting system. Suitability of the module
inverters) string design for the inverter. Interface with the
• Module supplier communications for remote monitoring and input into
• Inverter supplier the SCADA system. Many grid requirements or constraints
• Electrical contractor can be managed within the design.
• Grid network operator
• Communications contractor
6 AC/DC and Communications • Electrical contractor Liaison with regard to cable redundancy, routes, sizes,
Cabling • Civil contractor weights, attachments and strain relief requirements.
• Communications contractor Liaison with regards to the signalling requirements within
• Security contractor the site and to be provided to external parties throughout
• Power purchase (off-taker) company operation.
• Grid network operator
7 Grid Interface • Civil contractor Liaison with regard to required layout of building
• Electrical contractor equipment and interface with site cabling installed by the
• Inverter supplier site contractor. More interface outside the site boundary
• Network operator for the grid connection cable/line to the network
operator’s facilities.
8 Communications • Electrical contractor Interface between the security system, inverter system,
• Security contractor central monitoring (SCADA), the monitoring company,
• Communications Contractor and the owner or commercial operator of the PV plant.
• Owner and commercial operator
9 Commissioning • All contractors Commissioning of all systems will have several interface
issues particularly if problems are encountered.

114 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

 • Contingency of each task.
• Milestones and key dates.
• Interdependencies between tasks.
• Parties responsible for tasks.
• Project critical path.
• Actual progress against plan.
All tasks and the expected timescales for completion
should be detailed along with any restrictions on a
particular task. For example, if permits or weather
constraints are predicted to potentially stop construction
during particular months, this should be noted.
For a solar PV project, it is likely that the programme will
incorporate different levels of detail around each of the
following main work areas:
• Final design works.
• Procurement and manufacture of equipment.
• Site access.
• Security.
• Foundation construction.
• Mounting frame construction.
• Module installation.
• Substation construction.
• Electrical site works.
• Grid interconnection works.
• Commissioning and testing.
A high-level programme should be produced to outline
the timescales of each task, the ordering of the tasks and
any key deadlines. This should be completed as part of the
detailed design.
The programme will then be built up to detail all the
associated tasks and sub-tasks, ensuring that they will
be completed within the critical timescale. A thorough
programme will keep aside time and resources for any
contingency. It will also allocate allowance for weather
risk or permit restrictions for each task.
Interdependencies between tasks will allow the programme
to clearly define the ordering of tasks. A project-
scheduling package will then indicate the start date of
dependent tasks and highlight the critical path.
Critical path analysis is important to ensure that tasks
that can affect the overall delivery date of the project are
highlighted and prioritised. A comprehensive programme
should also take into account resource availability.
This will ensure that tasks are scheduled when required
staff or plant components are available. For example,
when exporting to a high voltage transmission line, a
large substation facility may need to be designed and
built according to the grid company requirements and
interconnect agreement specifications. The outage date
for connecting to the transmission line will be planned
well in advance. If the developer misses the outage date,
significant delays can be incurred, which can have a major
impact on the development. The outage date is thus a
critical path item around which the project development
and construction timeline may need to be planned.
Incorporating a procurement schedule that focuses on
items with a long manufacturing lead-time (such as
transformers, central inverters and modules) will ensure
that they are ordered and delivered to schedule. It will also
highlight any issues with the timing between delivery and
construction, and the need for storage onsite.
To share this information and to save time and effort, it
is strongly recommended that an “off-the-shelf” project-
scheduling package is used and that the programme is
monitored against site progress regularly.
To obtain visibility of the works on a day-to-day basis,
and receive early notice of any slippage in programme,
a good management and tracking tool to use is a weekly
look-ahead programme. This can be drawn up either
by the EPC contractor or the project management team
onsite.
10: Construction 115
10.4.1 MILESTONES • Access requirements.

Milestones are goals that are tied in with contractual
obligations, incentives or penalties. Incorporating
milestones in the programme helps the project team to
focus on achieving these goals. In effect, construction must
be planned around certain milestones or fixed dates (for
example, the grid connection date).
• Resource availability (plant, equipment and
manpower).
• Training and learning curve of manpower, especially if
in a new market or if local resources are being utilised.
• Consenting (or other regulatory) restrictions.

• Safety considerations.
If the contracted milestones are included in the
programme, the impact of slippage on these dates will • Grid availability.
be apparent. Appropriate budgetary and resourcing
10.4.3 RISK MANAGEMENT
decisions can then be made to address those delays. The
milestones can also indicate when payments are due to a The risks associated with the project should be identified,
contractor. Payment of contracted milestones should be assessed and managed throughout the construction
associated with the delivery of all relevant documentation process. The hazards need to be incorporated in the
to ensure the work has been built to specification and planning and scheduling of the project. Each aspect of
quality standards. This will ensure that the contractors the project should be assessed for likelihood and impact
are focused on delivering the paperwork as well as the of potential risks. The next step would be to develop
physical works. It will also help to minimise the potential a suitable action plan to mitigate identified risks. If a
for programme slippage later in the works due to awaiting particular risk could affect the delivery of the whole
documentation. project, alternatives for contingency (in terms of time and
budget) should be included.
10.4.2 PLANNING AND TASK SEQUENCING
Risk items may include timing delays, weather risk,
Appropriate sequencing of tasks is a vital part of the
grid connection delays, staff and equipment availability,
planning process. The tasks must be sequenced logically
transportation, ground conditions and environmental or
and efficiently. The overall sequence of works is
health and safety incidents. Many of these risks will have
generally site access, site clearance, security, foundation
been mitigated during the planning and design stage, for
construction, cable trenches and ducts, substation
example, by completing studies and plant design.
construction, mounting frame construction, module
installation, electrical site works, communications,
Some risks will remain until the equipment is on site:
site grid works and finally, testing and commissioning.
lost equipment or equipment damaged in transport, for
Each of these work areas should be broken down into a
example. This risk is reduced by selecting an experienced
series of sub-tasks. Alongside these, an assessment of the
supplier with suitable transport equipment. Insurance
inputs required for each task (especially when interfaces
will cover the cost associated with sourcing replacement
are involved) will help develop a logical and efficient
equipment, however if a key component such as the grid
sequence.
transformer is lost, then insurance will not compensate
for the time delays and loss of generation associated with
Consideration should also be given to any factors that
the component not being available. Such risks should be
could prevent or limit possible overlap of tasks. These
considered when drafting the EPC contract terms.
factors could include:

116 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

10.5 QUALITY MANAGEMENT
Controlling construction quality is essential for the success
of the project. The required level of quality should be
defined clearly and in detail in the contract specifications.
A quality plan is an overview document (generally in a
tabular form), that details all works, deliveries and tests to be
completed within the project. This allows work to be signed
off by the contractor and enables the developer to confirm if
the required quality procedures are being met. A quality plan
will generally include the following information:
• Tasks (broken into sections, if required).
• Contractor completing each task or accepting
equipment.
• Acceptance criteria.
• Completion date.
• Details of any records to be kept (for example,
photographs or test results).
• Signature or confirmation of contractor completing
tasks or accepting delivery.
• Signature of person who is confirming tasks or tests on
behalf of the developer.
Quality audits should be completed regularly. These
will help developers verify if contractors are completing
their works in line with their quality plans. Audits also
highlight quality issues that need to be addressed at
an early stage. Suitably experienced personnel should
undertake these audits.
10.6 ENVIRONMENTAL AND SOCIAL
MANAGEMENT
As noted in Section 8.3.4, the environmental and social
impact assessment (ESIA) or equivalent undertaken for
each project should result in an associated Environmental
and Social Management Plan (ESMP), which sets out
key environmental, health, safety and social impacts
identified for the project and addresses how these will be
mitigated. It is important that this document is referenced
or incorporated into the EPC contract so that the
construction contractor(s) can take appropriate steps that
adhere to the mitigation strategy. Implementation of the
ESMP is necessary to ensure that all national and lender-
specific conditions related to environmental, health, safety
and social impacts of the project are met. Contractor
performance should be monitored and corrected as
necessary. Further details on health and safety aspects of
the ESMP are provided below in Section 10.7.
10.7 HEALTH AND SAFETY MANAGEMENT
The health and safety (H&S) of the project work force
should be carefully overseen by the project developer.
Apart from ethical considerations, the costs of not
complying with H&S legislation can represent a major
risk to the project. Furthermore, a project with a
sensitive approach to H&S issues is more likely to obtain
international financing.
The World Bank Group General EHS Guidelines cover
H&S during construction, including:
• General facility design and operation.
• Communication and training.
• Physical hazards.
• Chemical hazards.
• Biological hazards.
• Personal protective equipment (PPE).
• Special hazard environments.
• Monitoring.
Solar-specific construction experience indicates that falls
from height, electrocution, incidents involving heavy
lifting machinery (i.e., cranes) and traffic accidents are
the most common causes of serious worker injuries or
fatalities in solar projects.
The EHS guidelines give guidance on how each of these
aspects of H&S should be approached, outlining minimum
requirements for each aspect and listing appropriate
control measures that can be put in place to reduce risks.
10: Construction 117
Furthermore, IFC PS2 sets out requirements in relation to 10.8.2 MECHANICAL
occupational H&S.
The mechanical construction phase usually involves the
installation and assembly of mounting structures on the
As a minimum standard, compliance with local H&S
site. Some simple mistakes can turn out to be costly,
legislation should be documented and rigorously enforced.
especially if these include:
Where local legal requirements are not as demanding
as the EHS guidelines, it is recommended that the EHS • Incorrect use of torque wrenches.
guidelines and requirements within IFC PS2 are followed.
• Cross bracing not applied.

10.8 SPECIFIC SOLAR PV CONSTRUCTION ISSUES • Incorrect orientation.

The following sections describe common pitfalls or • Misalignment of structures.

mistakes that can occur during the construction phase of a • Lack of anti-corrosion paint applied to structures.
solar PV project. Most of these pitfalls can be avoided by
appropriate design, monitoring, quality control and onsite If a tracking system is being used for the mounting
testing. structure, other risks include:

• Lack of clearance for rotation of modules.

10.8.1 CIVIL WORKS
• Actuator being incorrectly installed (or specified),
The civil works relating to the construction of a solar PV
resulting in the modules moving or vibrating instead of
plant are relatively straightforward. However, there can
locking effectively in the desired position.
be serious and expensive consequences if the foundations
and road networks are not adequately designed for
These mistakes are likely to result in remedial work being
the site. The main risks lie with the ground conditions.
required before hand-over and involve extra cost.
Importantly, inadequate ground investigation reports that
do not provide sufficient detailed ground information 10.8.3 ELECTRICAL
may result in misinterpretation of ground conditions
Cables should be installed in line with the manufacturer’s
leading to inappropriate foundation design. Importantly,
recommendations. Installation should be done with
ground surveys lacking meticulous detailing or proper
care as damage can occur when pulling the cable into
data interpretation could lead to risks such as installing
position. The correct pulling tensions and bending radii
unsuitable foundations.
should be adhered to by the installation contractor to
Brownfield sites pose a risk during the civil engineering prevent damage to the cable. Similarly, cables attached
works. Due to the nature of the excavation works digging to the mounting structure require the correct protection,
or pile driving for foundations, it is important to be aware attachment and strain relief to make sure that they are not
of hazardous obstacles or substances below ground level. damaged.
This is especially important when considering former
Underground cables should be buried at a suitable depth
industrial sites or military bases. Typical hazards may
(generally between 500mm and 1,000mm) with warning
include ground gases and leachate from former landfill
tape or tiles placed above and marking posts at suitable
operations, contaminated land due to historical industrial
intervals on the surface. Cables may either be buried
works or processes and unexploded ordnance from
directly or in ducts. If cables are buried directly, they
previous wartime activities, such as on or near active/
should be enveloped in a layer of sand or sifted soil in
retired military bases or other sites that may have been
order to avoid damage by backfill material.
mined or bombed.

118 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

Comprehensive tests should be undertaken prior to
energisation to verify that there has been no damage to the
cables.
In markets where electrical standards are being updated or
have been recently updated the developer should consider
obtaining expert advice from an electrical engineer or
consultant to confirm prior to order that any electrical
equipment imported into the country, including cables,
will meet the local requirements.
For larger tracking systems, central inverters, or pre-
manufactured inverter stations, cranes may be required.
Therefore, suitable access and space for manoeuvrability,
including room for the crane to extend its legs for stability
within the site, is essential (see Figure 23). This issue
should also be assessed from an operational perspective to
ensure any equipment can be replaced upon failure or end
of life.
10.8.6 SECURITY

A robust security plan needs to be put in place, especially

10.8.4 GRID CONNECTION
The grid connection will generally be carried out by a
third party over whom the project developer may have
limited control. Close communication with the grid
connection contractor is essential to ensure that the grid
requirements are met. Delay in the completion of the grid
connection will affect the energisation date, which will
delay the start of commercial operation.
Where the grid network contains only traditional
generation sources there is an additional risk that the grid
code requirements for renewable generation will not have
been fully established at the time of contract signature. In
these cases, certain provisions may need to be included in
the PPA; also, it is especially important to maintain regular
communication with the grid operator and if possible
engage the support of local consultants. Communicating
in areas where there may have been objections to the
works or where unemployment or crime is an issue. The
project is likely to have a substantial quantity of metal
including copper with significant scrap value. The modules
themselves can be the targets of theft and may also be
damaged by malicious acts.
The security arrangements for the site need planning and
adequate budgeting. Security arrangements can provide a
sustained benefit to the region by creating jobs for local
personnel.
Figure 22: Spacing between Module Rows

with other solar plant developers in the area, if there

are any, is strongly recommended and may enable the
developer to benefit from the lessons learned during the
implementation of these other projects that have already
been constructed.

10.8.5 LOGISTICAL

Logistical issues can arise if designs or schedules have not

been well thought through. Issues that may arise include:

• Lack of adequate clearance between rows of modules

for access (see Figure 22).

• Constrained access due to inclement weather

conditions.
Image courtesy of First Solar

10: Construction 119


Figure 23: Module Installation on a Large Tracking System
Image courtesy of a+f GmbH
10.8.7 EMERGING MARKET ISSUES
In new markets, there may be limited options for
obtaining/importing the equipment required, starting up
new manufacturing plants, or modifying construction
facilities to satisfy local demand. Any supply solution that
is adopted has associated risks.
Imported equipment can be subject to long transport times
and customs delays, especially if this is the first import for
a company or project.
New manufacturing suppliers in emerging markets can
have quality issues associated with the work; additional
time and monitoring is generally required to ensure that
the products being delivered by such suppliers meet
quality requirements. The packaging and transportation
of these products to the construction site also requires
careful consideration of how to prevent damage during
transportation.
Employees for project installation companies in emerging
markets are often inexperienced. This can lead to incorrect
installation methods or procedures, and may include a
120 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
lack of knowledge of the possible impact of completing
works in the wrong order, which can have a costly impact
on the project. However, with appropriate training, the
use of inexperienced local staff can present a low-cost and
locally-beneficial method of developing a solar PV power
plant.
Strict quality management is required. A rigorous plan
should be developed to ensure that risks and problems are
identified early and quickly so that they can be resolved in
a timely way.
10.9 CONSTRUCTION SUPERVISION
It is recommended that the owner of and lenders to
the project are kept informed of developments during
construction. Construction supervision may be carried out
by in-house resources. Alternatively, a “technical advisor”
or “Owner’s Engineer” may be commissioned to carry out
the work on their behalf.
The role of the technical advisor during the construction
phase involves ensuring contractor compliance with the
relevant contracts, as well as reporting on progress and
budget. The construction supervision team generally
comprises a site engineer supported by technical
experts based in an office. The main parts of the
technical advisor’s role are: review of proposed designs,
construction monitoring and witnessing of key tests.
Design reviews will generally be carried out on:
• Design basis statements.
• Studies/investigations.
• Design specifications.
• Design of structures.
• Drawings (all revisions).
• Calculations.
• Execution plans.
• Risk assessments and method statements.
• Quality plans.
 • Safety plans/reports. • Witnessing of delivery/off-load of solar modules,
transformers, inverters and switchgear.
• Material and equipment selection.
• Inspection of module, switchgear and inverter
• O&M manuals.
installation.
• Test reports.
• Witnessing of site acceptance tests.
The objective of the design review is to ensure that the • Witnessing of completion tests.
contractor has designed the works in accordance with
• Monitoring and expediting defects.
the contract agreements and relevant industry standards.
The review also aims to ascertain that the works will be
Besides the Owner’s Engineer, the lender’s engineer has
suitably resourced and sequenced to deliver the project as
the additional role of signing off and issuing certificates
specified. The design review can also cover specific areas
that state the percentage of the project completed. The
such as grid compliance or geotechnical issues, depending
lenders will require these certificates prior to releasing
upon the specific project requirements and experience of
funds in accordance with the project payment milestones.
the developers.
In some cases there is a requirement for an independent
or consulting engineer to verify that the works meet all
Key stages and tests for witnessing include:
standards and codes on behalf of the grid company or
• Inspection of road construction. power purchaser.
• Inspection of foundations.

• Verification of cable routes.

• Inspection of cable tracks.

10: Construction 121

 Box 7: Construction Lessons Learned

The construction of a solar PV power plant is a relatively straightforward process. However, there are common mistakes that EPC contractors
can easily avoid with correct planning and training procedures. Examples of such mistakes are itemised below.

PV Module Installation

Common issues during installation of modules include:

†† Inadequate number of clamps used, or incorrect positioning resulting in reduced module load-bearing capacity.
†† Modified or wrong type of clamp used as a result of inadequate spacing between modules, compromising integrity of the fixing and
leading to invalidation of warranty.
†† Module clamp bolts initially hand tightened and then tightened to the correct torque after a period of delay. There is a risk that strong
winds can blow the modules off the structure if the time lag between assembly and tightening is too long. Tightening of bolts should
occur shortly after assembly.
†† Over-tightening of clamp bolts with power tools leading to deformation of clamp and damage to corrosion-resistant coatings.
†† Damaged or scratched modules due to poor installation technique. The front and rear surface of modules should not come into
contact with support structures.

Mounting Structure

Common issues in relation to the construction of the mounting structures include:

†† Dissimilar metals not isolated from one another leading to material incompatibility issues in the form of galvanic corrosion. Isolation
solutions such as neoprene pads can be used.
†† Deformation of mounting structure during piling process, compromising galvanisation or structure.
†† Piles installed out of position, leading to piles and steel sections being forced or bent out of alignment in order to line up with
framing sections.

Civil Works

Common issues in relation to the construction of the mounting structures include:

†† Poor dust suppression leading to excessive accumulation of dirt on modules.
†† Missing or delayed perimeter fencing leading to animal or human intrusion. A fence should be installed prior to construction
commencing.
†† Drains becoming blocked with silt during earth works.
†† Inadequate surface water run-off management during construction, leading to delays caused by flooded and waterlogged sites.
†† Exceeding load-bearing capacity of exiting public tracks, causing damage.
†† Lack of levelling works after installation.

Equipment Enclosures / Housings

The integrity of the controlled environment within equipment enclosures/housings can be compromised if not installed correctly. Examples of
common issues include:
†† Unused glands not sealed or replaced with dummies.
†† Unsealed cable conduits.
†† Damaged or missing gaskets on entrance doors.
†† Unsealed cable trenches leading into inverter housings.
†† Water ingress due to any/all of the above, leading to a humid atmosphere causing corrosion damage to electrical components.

Environmental Monitoring

Incorrect positioning of the environmental monitoring equipment can lead to inaccuracies during performance assessment. The most common
reasons for these inaccuracies include:
†† Pyranometers not positioned at the same tilt angle as the modules.
†† Pyranometers subject to shading, causing reporting of elevated performance ratio (PR) calculations.

(continued)

122 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

Box 7: Construction Lessons Learned (continued)

Cable Management

The most common issues in relation to cable management include:

†† Cables crossing over sharp edges of mounting structures without suitable padding.
†† Insufficient labelling of cable ends.
†† Long unsupported spans due to an insufficient number of cable ties.
†† Cable bending radius too tight.
†† Inadequate cable burial depths.
†† Inadequate conduit cable protection.

Signage

Basic information requirements which are often omitted include:

†† General health and safety information including emergency contact numbers.
†† Lack of warning labels on electrical components.
†† Lack of warning labels on perimeter fence.
†† Support structure identification labelling.

Spare Parts
†† The permanent storage area for spare components is often not available when such components are delivered to the site, leading to
damage from poor temporary storage conditions.

10: Construction 123

 Construction Phase Checklist

Provided below is a checklist of basic required procedures in

addition to a list of recommended actions. It is intended to assist
solar PV power plant developers during the construction phase
of a PV project.

Required

 Contract, fully signed and reviewed by technical advisor

covering all interfaces.

 Design documentation completed.

 Detailed programme of works completed.

 Quality plan completed.

 Health and safety plan completed.

 Monthly reporting in place.

 All consenting, permitting and financing requirements

in place.

 Commissioning and testing plan agreed to by all parties,

detailing requirements and any tests needing witnesses
or sign-off.

Recommended

 Interface matrix drawn up.

 Deliverables schedule prepared for all documentation.

 Weekly look-ahead programme in place.

 Risk register detailing all potential risks and any mitigation

measures in place.

 Environmental plan completed.

 Monthly report structure completed.

 Matrix detailing the requirements and due dates prepared.

124 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

 Operation and Maintenance
An operation and maintenance
(O&M) contract is crucial for the
successful performance of the
PV plant during its operating life.
11
11.1 OPERATION AND MAINTENANCE (O&M)
OVERVIEW
Compared to other power generating technologies, solar PV
power plants have low maintenance and servicing requirements.
However, proper maintenance of a PV plant is essential to
maximise both energy yield and the plant’s useful life. Optimal
operations must strike a balance between maximising production
and minimising cost.
The presence of an operation and maintenance (O&M) contract
is crucial to define the parameters for the operation and
maintenance of a project during its life. If an O&M contractor is
being employed to undertake these tasks, it is important that all
requirements relating to preventative and corrective maintenance,
performance monitoring and reporting are clearly stated in the
contract along with the frequency with which these activities
need to be conducted. This allows contractor performance to be
measured and if necessary challenged.
It is normal for an O&M contractor to guarantee plant
performance during the contract term. Typically this is achieved
through the presence of an availability- or performance-ratio
warranty covering the entire plant. In the event of the contractor
not honouring its obligations, resulting in the plant performing
below the guaranteed value, the owner would be eligible to claim
for compensation to cover lost revenues.
The basic requirements for drafting an O&M contract for a Solar
PV power plant are set out in a checklist at the end of the chapter.
11.2 O&M CONTRACTS
It is common practice on solar PV projects that O&M is carried
out by a principal contractor, who is responsible for all aspects of
O&M, including any of the works performed by subcontractors
that may be engaged to deliver specialist services, such as inverter
servicing, ground-keeping, security or module cleaning.
11: Operation and Maintenance 125
An O&M contract is required between the project 11.3.1 MODULE CLEANING
company and the O&M provider that details the legal
Module cleaning is a simple but important task. It can
and technical aspects of the O&M provision. More
produce significant and immediate benefits in terms of
information on O&M contracts is provided in Section
energy yield.
11.7, with typical O&M terms outlined in Annex 2.
The frequency of module cleaning will depend on local
Maintenance can be broken down as follows:
site conditions and the time of year. As the level of module
• Scheduled maintenance: Planned in advance and aimed soiling is site-specific, the duration between cleans will
at fault prevention, as well as ensuring that the plant is vary significantly between sites. The frequency to clean
operated at its optimum level. modules will be dictated by factors such as site and
surrounding area ground covering (dusty and arid sites
• Unscheduled maintenance: Carried out in response to
will result in more soiling) and local rainfall patterns
failures.
(drier areas will result in more soiling).
Suitably thorough and regularly scheduled maintenance
Figure 24 illustrates the cleaning of modules in a large
should minimise the requirement for unscheduled
tracking installation (water is seen being sprayed on the
maintenance although, inevitably, some unforeseen
module surface).
failures will still occur. A robust and well-planned
approach to both scheduled and unscheduled
Other, lower-tech methods of cleaning include the use
maintenance is therefore important.
of a brush trolley, shown in Figure 25, and use of a dust
broom, shown in Figure 26.
11.3 SCHEDULED/PREVENTATIVE MAINTENANCE

Appropriate scheduling and frequency of preventative

maintenance is dictated by a number of factors. These
include the technology selected, environmental conditions
of the site, warranty terms and seasonal variances.
Scheduled maintenance is generally carried out at
intervals planned in accordance with the manufacturer’s
Figure 24: Module Cleaning Using Crane
recommendations, and as required by equipment
warranties. Scheduled maintenance that requires plant
shutdown should be conducted where possible during non-
peak production periods, such as early morning or evening.

Although scheduled maintenance will both maximise

production and prolong the life of the plant, it does
represent a cost to the project both in terms of expenses
incurred and lost revenue due to reduced power generation.
Therefore, the aim should be to seek the optimum balance
between the cost of scheduled maintenance and increased
yield over the life of the system.

Specific scheduled maintenance tasks are covered in the

following sections.
Image courtesy of a+f GmbH

126 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

When scheduling module cleaning, consideration should
be given to the following:
• Environmental and human factors (for instance,
autumn fall debris and soiling from local agricultural
and industrial activities).
• Weather patterns: cleaning during rainy periods is less
likely to be required.
Figure 25: Module Cleaning Using Brush Trolley
Image courtesy of First Solar
Figure 26 : Module Cleaning Using Dust Broom
Image courtesy of First Solar
• Dust carried from deserts by wind that may also
appear following rain.
• Dust caused by vehicular traffic.
• Site accessibility based upon weather predictions.
• Availability of water and cleaning materials.52
If the system efficiency is found to be below the expected
level, then the cleanliness of the modules should be
checked and cleaning conducted as necessary.
The optimum frequency of module cleaning can be
determined by assessing the costs and benefits of
conducting the procedure. The benefit of cleaning should
be seen in an improved system performance ratio (PR)
due to the lower soiling loss and resultant increase in
revenue. A cost estimate to clean the PV modules should
be obtained from the O&M contractor and compared
with the potential increase in revenue. The agreed O&M
contract should detail an agreed number of cleans per
annum and their frequency. It should also outline the
labour rate or unit price at which the owner may request
an additional plant-wide clean of modules to allow this
cost-benefit analysis to be conducted.
11.3.2 MODULE CONNECTION INTEGRITY
Checking module connection integrity is important for
systems that do not incorporate monitoring at the module
string level. This is more likely for plants utilising central
inverter technology. In such cases, faults within each
string of modules may be difficult to detect given that the
current within each string is not being monitored and
continuously compared to other strings.
If string level monitoring is not used, then the O&M
contractor should check the connections between modules
within each string periodically, at least on an annual basis.
52 Water in the amount of about 1.6 l/m2 of module surface may be required for
each module clean, dependent on the method adopted.
11: Operation and Maintenance 127
11.3.3 JUNCTION OR STRING COMBINER BOX
All junction boxes or string combiner boxes should
be checked periodically for water ingress, dirt or dust
accumulation and integrity of the connections within
the boxes. Loose connections could affect the overall
performance of the PV plant. Any accumulation of water,
dirt or dust could cause corrosion or short circuit within
the junction box.
Where string level monitoring is not used, the O&M
contractor should conduct periodic checks, at least on an
annual basis, of the integrity of the fuses in the junction
boxes, combiner boxes and, in some cases, the module
connection box.
11.3.4 HOT SPOTS
Potential faults across the PV plant can often be detected
through thermography. This technique helps identify
weak and loose connections in junction boxes and
inverter connections, which is a common problem in hot
climates where large variations between day and night
temperatures can cause contacts to loosen. Thermography
may also detect hot spots within inverter components and
on modules that are not performing as expected.
A trained specialist should conduct thermography using a
thermographic camera at least on an annual basis.
11.3.5 INVERTER SERVICING
Generally, inverter faults are the most common cause
of system downtime in PV power plants. Therefore, the
scheduled maintenance of inverters should be treated as a
centrally important part of the O&M strategy.
The maintenance requirements of inverters vary with
size, type and manufacturer. The specific requirements
of any particular inverter should be confirmed by the
manufacturer and used as the basis for planning the
maintenance schedule.
Regular preventative maintenance for an inverter should,
as a minimum, include:
• Visual inspections.
128 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
• Cleaning/replacing cooling fan filters.
• Removal of dust from electronic components.
• Tightening of any loose connections.
• Any additional analysis and diagnostics recommended
by the manufacturer.
11.3.6 STRUCTURAL INTEGRITY
The module mounting assembly, cable conduits and any
other structures built for the solar PV power plant should
be checked periodically for mechanical integrity and signs
of corrosion. This will include an inspection of support
structure foundations for evidence of erosion from water
run-off.
11.3.7 TRACKER SERVICING
Similarly, tracking systems also require maintenance
checks. These checks will be outlined in the manufacturer’s
documentation and defined within the warranty
conditions. In general, the checks will include inspection
for wear and tear on the moving parts, servicing of the
motors or actuators, checks on the integrity of the control
and power cables, servicing of the gearboxes and ensuring
that the levels of lubricating fluids are appropriate.
The alignment and positioning of the tracking system
should also be checked to ensure that it is functioning
optimally. Sensors and controllers should be checked
periodically for calibration and alignment.
11.3.8 BALANCE OF PLANT
The remaining systems within a solar PV power plant,
including the monitoring and security systems, auxiliary
power supplies, and communication systems, should be
checked and serviced regularly. Communications systems
within and externally connected to the PV plant should be
checked for signal strength and connection.
11.3.9 VEGETATION CONTROL
Vegetation control and grounds keeping are important
scheduled tasks for solar PV power plants. Vegetation
(for example, long grass, trees or shrubs) has the potential
to shade the modules and reduce performance. Prudent
grounds keeping can also reduce the risk of soiling on the
modules from leaves, pollen or dust.
11.4 UNSCHEDULED MAINTENANCE
Unscheduled maintenance is carried out in response to
failures. As such, the key parameters when considering
unscheduled maintenance are diagnosis, speed of response
and repair time. Although the shortest possible response
is preferable for increasing energy yield, this should be
balanced against the likelihood of increased contractual
costs of achieving shorter response times.
The agreed response times should be clearly stated within
the O&M contract and will depend on the site location—
and whether it is manned. Depending on the type of fault,
an indicative response time may be within 48 hours, with
liquidated damages payable by the contractor if this limit
is exceeded. The presence of an availability guarantee
within the O&M contract will also provide motivation for
the contractor to provide an efficient and speedy repair
in the event of equipment failure and resulting plant
downtime.
For a well-designed and well-constructed plant, a large
proportion of unscheduled maintenance issues may be
related to inverter faults. Depending on the nature of the
fault, it may be possible to rectify the failure remotely.
This option is clearly preferable, if possible.
Other common unscheduled maintenance requirements
include:
• Tightening cable connections that have loosened.
• Replacing blown fuses.
• Repairing lightning damage.
• Repairing equipment damaged by intruders or during
module cleaning.
• Rectifying SCADA faults.
• Repairing mounting structure faults.
• Rectifying tracking system faults.
The contractual aspects of unscheduled O&M are
described in more detail below.
11.5 SPARE PARTS
In order to facilitate a rapid response in the event of
equipment failure, a suitably stocked spare parts inventory
is essential. Because spare parts cost money, their purchase
should be justified by the benefit they bring in reducing
plant downtime and avoiding revenue loss. The optimum
spare parts strategy will depend on the size of the plant,
local availability of replacement parts and the potential for
sharing critical equipment across a number of plants under
common ownership. In general, adequate supplies of the
following essential components should be held:
• Mounting structure pieces.
• Junction/combiner boxes.
• Fuses.
• DC and AC cabling components.
• Communications equipment.
• Modules (in case of module damage).
• Spare inverters (if string inverters are being used)
or components according to manufacturer’s
recommendations in the case of central inverters.
• Spare motors, actuators and sensors where tracking
systems are used.
It is important that spares stock levels are maintained.
Therefore, when the O&M contractor uses components
from the spares inventory, the contractor should be
responsible for replenishing the stocks as soon as is
feasible. This arrangement will reduce the time gap
between the identification of the fault and replacement of
the non-operational component. This can be of particular
importance for remote locations where poor accessibility
or adverse weather conditions can delay the delivery of
components to the site. Consultation with manufacturers
to detail the spare parts inventory, based upon estimated
component lifetimes and failure rates, is recommended.
11: Operation and Maintenance 129
11.6 PERFORMANCE MONITORING, EVALUATION
AND OPTIMISATION
To optimise system performance, there is a need to ensure
that the plant components function efficiently throughout
the lifetime of the plant. Continuous monitoring of PV
systems is essential to maximise the availability and yield
of the system.
Section 7.7 describes monitoring systems for PV plants. A
SCADA system is able to monitor the real-time efficiency
of the PV system and continuously compare it with the
theoretical efficiency to assess if the system is operating
optimally. This information can be used by the O&M
contractor to establish the general condition of the system
and schedule urgent repair or maintenance activities such
as cleaning.
11.7 O&M CONTRACTS FOR SOLAR PV PLANTS
This section describes the key issues with O&M contracts
for solar PV power plants. For reference, the typical terms
commonly seen in O&M contracts are included in Annex
3: O&M Term Sheet.
It is common for the PV plant O&M to be carried out by
specialist contractors. The contractor will be responsible
for the O&M of the whole plant, its subcomponents
and also the work of any subcontractors. In addition
to operating the plant and maintaining all equipment,
the O&M contractor may also be responsible for the
provision of plant security and grounds keeping.
The duration of O&M contracts will vary on a project-
by-project basis. Some plant owners (typically investment
funds) like the cost surety and predictability that a lengthy
contract term can bring. As such, contract durations in
excess of 20 years, covering the anticipated project lifetime
are often seen. For other owners, a shorter duration,
such as one to five years, may be more desirable because
it allows owners to take advantage of falling market
costs and negotiate more favourable terms when their
current contract expires. In all cases, termination events
should be clearly defined to allow the owner to terminate
130 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
the contract, irrespective of its duration, in the event of
contractor default, underperformance or insolvency.
11.7.1 PURPOSE OF AN O&M CONTRACT
The purpose of an O&M contract is to optimise the
performance of the plant within established cost
parameters. To do this effectively, the contract must be
suitably detailed and comprehensive. In particular, the
O&M contract should clearly set out:
• Services to be carried out by, and obligations of, the
contractor.
• Frequency of the services.
• Obligations of the owner.
• Standards, legislation and guidelines with which the
contractor must comply.
• Payment structure.
• Performance guarantees and operational targets.
• Methodologies for calculating plant availability and/or
performance ratio.
• Methodologies for calculating liquidated damages/
bonus payments in the event of plant under- or over-
performance.
• Terms and conditions.
• Legal aspects.
• Insurance requirements and responsibilities.
These issues are discussed in the following sections.
11.7.2 CONTRACTOR SERVICES AND OBLIGATIONS
The O&M contract should list the services to be
performed by the contractor. This list should be site- and
equipment-specific, and include the following:
• Plant monitoring requirements.
• Scheduled maintenance requirements.
• Unscheduled maintenance requirements.
• Agreed targets and/or guarantees (for example,
response time or system availability figure)
 • Reporting requirements (including performance,
environmental, health and safety, and labour relations
reporting).
While the O&M contractor’s primary role is to maintain
the plant, ensuring that it and all subcomponents are
functioning and able to export electrical energy to the
grid, the contractor should also be contractually obliged
to optimise plant performance. Additionally, it should be
stipulated that all maintenance tasks should be performed
in such a way that their impact on the productivity of the
system is minimised. In particular, the contract should
state that preventative maintenance tasks that require the
removal of equipment from service should be kept to a
minimum and performed during low irradiation hours.
The O&M contract will typically define the terms by
which the contractor is to:
• Provide, at intervals, a visual check of the system
components for visible damage and defects.
• Provide, at intervals, a functional test of the system
components.
• Ensure that the required maintenance will be
conducted on all components of the system. As a
minimum, these activities should be in line with
manufacturer recommendations and the conditions of
the equipment warranties.
• Provide appropriate cleaning of the modules and the
removal of snow (site-specific).
• Make sure that the natural environment of the system
is maintained to avoid shading and aid maintenance
activities.
• Replace defective system components and system
components whose failure is deemed imminent.
• Provide daily (typically during business hours) remote
monitoring of the performance of the PV plant to
identify when performance drops below set trigger
levels.
A schedule of preventative maintenance activities should
be prepared and appended to the O&M contract to easily
track whether the agreed timetable is being met. As well as
ensuring that all equipment is being serviced in line with
manufacturer’s guidelines, this also allows for contractor
performance to be measured.
11.7.3 OBLIGATIONS ON THE OWNER
In an O&M contract, the obligations of the owner/
developer are generally limited to:
• Granting the O&M contractor access to the system
and all the associated land and access points.
• Obtaining all approvals, licences and permits necessary
for the legal operation of the plant.
• Providing the O&M contractor with all relevant
documents and information, such as those detailed
above, that are necessary for the operational
management of the plant.
11.7.4 STANDARDS, LEGISLATION AND GUIDELINES
This section of the contract outlines the various conditions
with which the O&M contractor must comply while
carrying out the O&M of the plant. These conditions
should be drawn from the following documentation:
• Building or construction permits.
• Planning consents and licences.
• Grid connection statement, the grid connection
agreement and power purchase agreement.
• Operating manuals for system components.
• Applicable legislation.
• Local engineering practices (unless the documents and
conditions listed above require a higher standard).
11.7.5 PAYMENT
The cost and remuneration of the O&M contract are
generally broken down into:
• Fixed remuneration and payment dates.
• Other services remuneration and expenditure
reimbursement.
11: Operation and Maintenance 131
Fixed remuneration outlines the payment for the basic
services that are to be provided by the contractor under
the O&M contract. This section should include the
following:
• Cost—usually a fixed price per kWp installed.
• Payment structure (monthly or quarterly, generally
in arrears).
• Payment indexation over the duration of the contract.
Remuneration for other services includes payment for any
services beyond the scope of the contract. This should
include:
• Method for determining level of other services carried
out.
• Agreed rates for conducting these services.
• Agreed method for approving additional expenses or
services with the owner.
• Any required spare parts and other components not
covered by individual warranties or held in the owner’s
inventory.
11.7.6 WARRANTIES/PERFORMANCE GUARANTEES
The contract should include a plant-wide performance
guarantee to be calculated on a regular basis. On large-
scale solar PV power plants this typically takes the form
of an availability or performance ratio (PR) warranty. An
availability warranty provides a measure of plant ‘uptime’
and how successful the contractor is in keeping the plant
functional and capable of exporting electrical energy
to the grid. A PR warranty provides a measure of plant
efficiency at converting solar irradiation into electrical
energy. While a PR warranty may be preferable because it
incentivizes the contractor to optimise plant performance
rather than just ensure its operational readiness, some
third-party O&M providers are reluctant to provide such
a warranty on systems they did not design or construct.
A PR guarantee is an industry standard and is considered
a pre-requisite to a suitable long-term O&M strategy.
The guarantee makes it the responsibility of the O&M
contractor to ensure that the plant achieves a PR level
132 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
greater than the guaranteed value. If the plant operates
below this value, the contractor will be liable to pay
compensation in the form of liquidated damages to the
owner. Damages should be set at a level that is a genuine
estimate of the loss or damage that the owner will suffer in
the event of plant under-performance.
11.7.7 LEGAL
The contract will have a section outlining the governing
law and jurisdiction of the O&M contract. The governing
law is normally the law of the country in which the
project is located. A legal succession or a transfer of rights
condition is required for the developer to reserve the right
to assign the O&M contract to a third party.
It is also recommended that every contract have a non-
disclosure agreement. This agreement between the O&M
contractor and the developer will outline the information
that is to be treated as confidential, as well as that
information which can be disclosed to third parties.
11.7.8 INSURANCE
The contract should have a section outlining the insurance
responsibilities of the contractor for the O&M activities.
This insurance should cover damage to the plant, as well
as provide cover for employees conducting maintenance.
It is normal for the O&M contractor to arrange and pay
for the full site insurance.
11.7.9 TERM OF AGREEMENT
Every O&M contract needs to have a section that outlines
when the contract shall become effective and the duration
of the contract from the effective date. This section should
also include provisions to renew or extend the contract
upon conclusion of the originally agreed term.
It is also recommended that this section include the
circumstances in which either the maintenance contractor
or the developer would be entitled to terminate the
contract.
11.7.10 RESPONSE TIME
The guaranteed response time of a maintenance contractor
is an important component of the O&M contract. As soon
as notification of a fault occurs, it is the responsibility of
the contractor to go to the site within a set period of time.
The faster the response time, the swifter the issues can
be diagnosed and the system returned to full production.
The distance between the PV plant and the contractor’s
premises has a direct correlation with the duration of the
guaranteed response time.
The time of year coupled with the accessibility to the site
can have a bearing on the actual response time for any
unscheduled maintenance event. Restrictions to access
roads at certain times of the year can delay response.
Adverse conditions can also reduce the size of the payload
that can be transported to the site, thus extending the
duration of the maintenance work.
The presence of a strong PR guarantee also ensures that
the contractor is motivated to undertake an efficient
response and restore system performance when alerted
to a fault. If such guarantees are sufficiently strong, the
need for explicit response times within a contract may be
reduced.
11.7.11 SELECTING A CONTRACTOR
When choosing an O&M contractor, the capability of the
company should be thoroughly examined. In particular,
the following aspects should be considered:
• Familiarity of the contractor with the site and
technology.
• Location of the contractor’s premises.
• Number and competency of staff.
• Experience and track record.
• Financial strength and ability to honour warranty
obligations.
The intention should be to select a suitably experienced
contractor able to meet the requirements of the contract
for the duration of the project.
11: Operation and Maintenance 133
 O&M Contracting Checklist

The checklist below sets out the basic requirements for the
drafting of a strong solar PV power plant O&M contract.

 Legal and technical advisors engaged to advise on form

of contract.

 The O&M contractor is suitably experienced on a similar

scale plant and familiar with the technology.

 Performance guarantees included to allow owner to claim

liquidated damages (LDs) in the event of low availability
or PR.

 Payments are made to the contractor in arrears to allow for

deduction of any LDs over the corresponding period.

 LDs sized to be a genuine pre-estimate of losses likely to be

incurred.

 Rules for spare parts management are clearly defined.

Contractor is responsible for replenishing stock and
ensuring original level is maintained.

 Rules for subcontracting clearly defined to ensure principal

contractor is fully responsible for all sub-contractor works.

 The O&M contract requires the contractor to maintain all

equipment in line with manufacturer guidelines (to ensure
that all equipment warranties remain valid).

 Preventative maintenance regime defined in contract is

comprehensive, helping to minimize the need for corrective
maintenance.

134 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

 Policies and Support Mechanisms for Solar PV
Developers should consider
how policy provisions are
designed and what specific
support mechanisms for solar PV
projects are available to bridge
the gap between the costs of
conventional power sources and
solar PV.
12
12.1 POLICIES AND SUPPORT MECHANISMS OVERVIEW
While the cost per kWh of solar PV power has come down
dramatically and continues to fall, in most cases direct or indirect
financial incentives are still required in order to increase the
commercial attractiveness of solar PV projects so that there is
sufficient investment in new projects to meet national goals for
renewable energy production.
Price-based incentives such as FiTs remain among the most
common instruments to boost the commercial case for solar.
In place of price-based incentives, quantity-based mechanisms
use binding policy provisions to establish quotas that require
power utilities to purchase a specific percentage of their power
from a renewable source. Quotas translate into investment
opportunities for developers, who are able to supply utilities with
the required electricity generated by renewable energy facilities.
Complementing the arsenal of policy instruments available to
governments are fiscal incentives—e.g., investment or production
tax credits, and direct public support schemes, such as soft
loans or an equity participation by a public entity. Policies that
guarantee and facilitate connection and access of PV plants to
the grid are also important for the viability of PV projects by
removing common barriers.
Developers should consider how policy provisions are designed
and what specific support mechanisms for solar PV projects are
available to bridge the gap between the costs of conventional
power sources and solar PV power.
It is important for developers to understand the conditions under
which they may access support schemes and the requirements
they must fulfil to do so within a given market. The process a
developer must follow to meet the requirements for obtaining
support differ from country to country, reflecting the priorities
of the regulatory regime and the structure of the power market.
Levels, types, and duration of support that developers can access
will vary. Incentives are generally offered at the national level.
12: Policies and Support Mechanisms for Solar PV 135
Sometimes state and provincial authorities offer additional
incentives.
The critical mandate for any developer is to:
• Learn what support mechanisms are available.
• Determine whether the project will be able to meet
the criteria for securing support and understand the
historical reliability of the delivery of these supports.
• Factor all this information into the business plan and
demonstrate to investors that the discounted cash flows
are appealing.
• Follow through meeting the requirements to secure the
support available.
Refer also to the checklist at the end of the chapter for key
considerations in accessing support mechanisms in any
market.
12.2 POLICIES AND SUPPORT MECHANISMS
OVERVIEW
12.2.1 TYPES OF SUPPORT MECHANISMS
This sub-section provides an overview of the six common
types of renewable energy support mechanisms used
by governments, including both mechanisms that help
developers to improve cash flow and those that offer
opportunities to competitively enter the market:
• Feed-in Tariffs (FiTs): A FiT is a predetermined price
for every unit of electricity generated by a solar PV
power plant, paid through a long-term contract.
Typically, projects must meet certain eligibility criteria
and receive authorization from a government body to
receive the FiT (and usually preferential grid access as
well); smaller projects may automatically receive the
FiT up to a certain maximum level of MWs (maximum
capacity).
• Reverse Auctions and Tenders: Reverse auctions
for independent power producers (IPPs) involve the
competitive procurement of energy, whether at a
specific site or without specifying where a new plant
must be built. Renewable energy auctions can be
technology-neutral where solar competes with other
136 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
renewable energy sources, or technology-specific where
different solar projects compete with each other. A
tender of a specific site is a call for bids for the rights
to develop a PV project on a site pre-selected by the
government or utility.
• Market-based Instruments: These accompany quantity-
based mechanisms, such as renewable portfolio
standards or quota obligations. Certificates associated
with renewable energy production are traded on a
market and result in additional revenue for renewable
energy producers. Examples include tradable
renewable certificates or carbon certificates.
• Tax Incentives: Tax incentives can be used by a
project owner to offset capital costs or profits, or to
reduce specific taxes such as VAT or import duties.
Accelerated depreciation is another option intended
to attenuate the high capital costs of renewable energy
projects.
• Soft Loans: Soft loans—i.e. those with a below-market
interest rate or extended tenor—are sometimes made
available, especially in the early stage of technology
deployment by government-backed institutions.
• Capital Grants: Capital grants from public sources
reduce the upfront financing burden and can stimulate
interest in a new market. This option was used in the
early stages of PV development. As the technology has
matured, it is not necessary and now very rare.
The above provide direct and indirect financial supports
designed to cover the incremental costs of solar PV
power against conventional power supply options. The
relative merits and conditions of different energy policy
frameworks vary widely between countries and regions.
Hence, it is crucial for developers to consider the effect
on the commercial viability of their project, including
the private investment risk of policies within a specific
political and economic context.53 The International
53 For more on this topic, see IEA, IRENA, the US National Laboratories (including
Lawrence Berkeley, Sandia, and the National Renewable Energy Laboratory)
and the World Bank’s Energy Management Assistance Program. See also,
IRENA’s “Evaluating Policies in Support of the Deployment of Renewable
Power” (2012), and the World Bank’s Renewable Energy Financial Instrument
Tool (REFINe).
Renewable Energy Agency and the International Energy
Agency host a joint database that provides relatively
comprehensive and up-to-date information on the types
of support mechanisms and corresponding incentives
available for renewable energy projects in different
countries.54
12.3 SOLAR PV SUPPORT MECHANISMS
This sub-section discusses in detail the six types of support
mechanisms that may be available to solar PV power plant
developers. It explains the nature of support provided by
each mechanism, as well its advantages and disadvantages.
Key concerns for the developer are also discussed for each
mechanism.
12.3.1 FEED-IN TARIFFS (FiTs)
FiTs offer a fixed, typically long-term (10–25 years)
electricity sales price, often combined with preferential
grid access and other favourable off-take terms, such
as priority dispatch. This fixed price, typically linked to
inflation, is intended to cover the actual cost of renewable
energy generation (typically higher than conventional
power sources) and allow a sufficient margin to enable
investors to make a return commensurate with the risk
profile of the project. Box 8 provides an example of FiTs
in Thailand for both rooftop and utility-scale solar PV
projects.
FiTs played a critical role in stimulating the early growth
of solar PV energy, especially in Europe and Japan, and
remain a widespread tool to support PV projects in many
markets. FiTs protect a PV project from competition with
other sources of generation and from price fluctuations on
the wholesale electricity market, stabilizing revenues.55
FiTs are generally attractive to lenders because they are
secure and stable. The long-term revenues for a project
with a FiT can be modelled with a high degree of certainty,
54 http://www.iea.org/policiesandmeasures/renewableenergy/
55 There are many publications analyzing feed-in tariffs. Among them, see
“Feed-in Tariffs as a Policy Instrument for Promoting Renewable Energy and
Green Economies in Developing Countries,” United Nations Environment
Programme (UNEP), 2012.
making such projects easier to finance. However, in
accepting a FiT, the developer takes on policy and credit
risk, and must assess whether the off-taker is required,
willing, and able to provide support at the contracted level
over the project’s life; this is especially critical if the FiT is
substantially higher than prevailing power prices. The key
issues and risks related to FiTs are summarized below.
12.3.1.1 The Level of FiT and Sustainability of
Support
It is wise to assess the sustainability of the FiT—
specifically, whether the mechanism is sustainable through
which the incremental cost of a PV project is recovered.
For example, if the regulatory framework specifies that
the incremental costs will be covered through a specific
component in the energy bill of the consumers, this may
be viewed as sustainable and lower risk. However, if
the incremental cost is covered by sources that are not
certain, the sustainability of the FiT may be viewed with
some caution. Countries that adopted FiTs early on, when
the PV costs were still high, had to absorb substantial
incremental costs, burdening either the end-user tariffs
or the government’s fiscal situation. As PV costs declined
substantially (especially over the period 2010–2014),
these countries were under pressure to revise the FiTs.
Revision for future projects is rational, especially if
PV costs decline, but retroactive revision (affecting PV
plants already built) is not rational and has affected
developers who have incurred high costs. For example,
due to the fiscal strain under which governments found
themselves after the financial crisis in 2008, Spain in
2010 retroactively altered their FiT, impacting contracted
projects. Spain was followed by Bulgaria in 2012 and
Greece in 2014.56 In late 2013, several Australian state
governments proposed retroactive cuts to FiT schemes,
although these were withdrawn due to unpopular public
reactions.
56 Legislation: Royal Decree 1565/2010 adopted on 19 November 2010 by the
Council of Ministers. For more details, see the European Photovoltaic Industry
Association’s “Retrospective Measures at the National Level and their impact
on the photovoltaic sector.” 10 December 2013. Available at www.epia.org.
12: Policies and Support Mechanisms for Solar PV 137
Even for technologies where costs haven’t dropped as
dramatically over the past decade, most governments will
today put in place cost containment measures for FiT
schemes to cap the overall fiscal costs. In particular, tariff
levels may decrease on a sliding scale over years or the
support for new sites will be capped in terms of the total
fiscal cost they represent. Also, some FiTs are envisioned
to be updated periodically (every 2–3 years); in this case,
changes should affect future contracts and will not be
retroactive. Retroactive changes to FiT schemes are rare,
but they can be extremely detrimental to the projects
affected. It is more common for policies to be abruptly

Box 8: Thailand’s Feed-in Tariff (FiT) Policies

The solar market in Thailand is currently driven by two key Feed-in Tariff (FiT) policies designed to help the country meet its ambitious
targets for solar development by 2021.a
1. Rooftop solar projects policy.b
2. Ground-mounted solar projects policy.

The rooftop FiT policy provides an incentive for developing rooftop and community ground-mounted solar systems, and is capped at an
installed capacity of 200 MW. The FiT rate is scaled dependent on the project size. The FiT rates below are granted to projects that were
fully commissioned before December 2013 and are valid for a 25-year operational period.

FiT Rates for Rooftop Solar Projects in Thailand

FiT Rate (USD/kWh)
Project Size (kW) FiT Rate (Baht/kWh)
(1 Thai Bhat = 0.0310 USD)
0–10 6.96 0.22
10–250 6.55 0.20
250–1000 6.16 0.19

The ground-mounted FiT policy provides an incentive for up to 800 MW of projects to be commissioned by the end of 2014. The FiT rate
varies throughout the lifetime of a developed project and is presented below.

FiT Rates for Ground-mounted Solar Projects in Thailand

FiT Rate (USD/kWh)
Year FiT Rate (Baht/kWh)
(1 Thai Bhat = 0.0310 USD)
1–3 9.75 0.30
4–10 6.50 0.20
11–25 4.50 0.14

For both the rooftop and ground-mounted FiT policies, the FiT rate can be considered relatively generous and project IRRs should be
attractive to investors. The Thai government has periodically revised the FiT rates and current information on incentives for projects
developed beyond 2014 can be found online.c

a http://thaisolarpvroadmap.org/wordpress/?p=940

b http://www.eppo.go.th/nepc/kpc/kpc-145.html

c http://www.iea.org/policiesandmeasures/renewableenergy/?country=Thailand

138 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

cancelled or altered, impacting un-contracted projects
under development more than those already in operation.
There are several types of existing insurances for project
risks. The risk of retroactive changes in the regulatory
support framework has surfaced in recent years and
attempts have been made to provide insurance coevrage.
For example, the World Bank Group may cover such
risks through Partial Risk Guarantees. In many cases, a
lender will require appointing an insurance advisor who
can ensure the adequacy of insurance for a solar power
project.
12.3.1.2 FiT Limitations
Commensurate with the determination of the tariff, the
regulator or utility usually set a maximum level of capacity
(MW) or energy (GWh) eligible for the FiT. For distributed
generation, i.e., small-scale energy generated close to its
point of use, the volume of power and number of projects
eligible for the tariff may be open-ended (although, given
the experience of several European countries overwhelmed
by an unexpected response to such incentives, setting a
cap in line with public budget priorities seems wise). For
utility-scale projects (the focus of this guide), it is more
common for the FiT to set limits, i.e., 200 MW of capacity
in a given technology category, whereby the threshold
is often a function of the national target a government
intends to reach for its renewable energy production.
In addition to transparently-announced capacity limits,
there may also be de-facto limits on securing the FiT. If
particular permits are required prior to FiT application,
bottlenecks may develop around key approval points,
for example authorizations from local or national
planning authorities, energy regulators or environmental
authorities. Developers should also consider the available
transmission capacity to carry power from their project
site/the areas suited for solar PV project development to
the areas that require power.57 In Chile, for example, an
57 While solar is less site-specific than other renewables like hydro or wind,
utility-scale ground-mounted projects require large plots of un-shaded land,
ideally of relatively low value. These areas are more likely to be in remote areas
than in large urban areas where demand for power is growing, particularly in
rapidly urbanizing developing countries.
extraordinarily rapid increase in solar development in the
North may lead to strained grid capacity, while in Japan,
utilities concerned about maintaining power reliability
(and the price of solar PV power) have demonstrated
reluctance to embrace high volumes of solar energy and
have delayed grid connection.
12.3.1.3 Off-take Agreement
The tariff with its feed-in provisions is secured through a
PPA between the solar producer and the off-taker, which
can be the utility, the system operator, or the specially-
created institution. As with any power sale agreement, the
main risk factor to consider is the creditworthiness of the
off-taker. For example, Kazakhstan has adopted relatively
attractive FiTs for renewable technologies, but private
projects cannot get commercial financing because the
bankability of the PPA with the off-taker Cost Settlement
Center (CSC) is a key concern. The CSC is a newly-created
entity with no assets, credit history or established cash
flows. More information on the PPA is provided in Section
13.
12.3.1.4 Currency Exchange Risk
Considering that in many countries a substantial
percentage of the investment requirement is in hard
currency while the revenue is in the local currency, there
may be substantial risk associated with foreign exchange
fluctuations. Some countries have recognized this and
have indexed the FiT to a hard currency. This reduces the
risk exposure of the developer. If such protection is not
provided, the developer needs to assess the risk exposure
and take appropriate precautions.
12.3.1.5 Sustainability of the Power Sector
It is always advisable for a developer to consider the
financial sustainability of the tariff in the context of the
local power market, including the forecasted demand for
power, the current and projected levelized cost of energy
from the existing power mix, the marginal cost of power
supply (present and future), the ability of the utility to
pass on the costs to consumers, and public willingness to
pay for renewable energy. When the FiT is out of line with
other trends in the market or significant price distortions
12: Policies and Support Mechanisms for Solar PV 139
exist, extra caution is merited, and it is wise to consider Tender awards will be allocated to developers who have
the project economics in the event of policy changes. the lowest tariff bid, starting with the lowest electricity
sales price bid. For example:
12.3.2 REVERSE AUCTIONS AND TENDERS
• Solar PV Project A: 25 MW @ $0.10/kWh
The alternative to a policymaker or off-taker pre-
• Solar PV Project B: 15 MW @ $0.12/kWh
determining the FiT to be offered for a solar PVproject is
to conduct a reverse auction (or tender) for new capacity. • Solar PV Project C: 10 MW @ $0.14/kWh
Developers bidding for the opportunity to construct the
project determine the level of the FiT. In this way, the price The developer with the lowest electricity production costs
that the off-taker pays the developer that wins the bid is will be best positioned to bid the lowest tariff, and most
competitively determined. Sometimes reverse auctions likely to be awarded a contract. If the cap set in the tender
allow for developers to propose project sites, while other was for 40 MWs, for example, only Projects A and B
times a tender will be announced with sites pre-selected would be awarded a contract.
by the off-taker. Conducting such a process requires
The details of tender award allocation will differ between
specialized expertise and can incur higher transaction
countries and potentially even within rounds of the same
costs, but ultimately may be more cost-effective, as
country program. Awards may be made until the quota
competition can drive the tariff to the lowest level
for that technology has been fully allocated, or sometimes
necessary to support projects.
only partially completed tenders take place.
12.3.2.1 Procedure
When a tendered bid has been confirmed, the project
A reverse auction starts with an announcement from a
developer and the off-taker will sign a PPA based on the
government or utility that has responsibility for this task. The
proposed tariff over the predefined period of time.
government or utility then invites developers to bid the tariff
they are willing to receive to provide solar energy. The tender 12.3.2.2 Risks and Issues
will seek an announced number of MW and may be limited
The main risk for a developer under a tender scheme
to (or sub-divided by) projects of a certain size (i.e., above
is that s/he will not win the bid. Preparing a bid for a
or below 10MW), in certain regions (i.e., near an area with
large-scale PV installation can be costly. Developers must
need for more capacity), and for certain technology (solar
be willing to expend considerable time and resources
PV rather than CSP). In order to participate in a tender,
in costing projects and potentially optioning land
a developer must qualify by fulfilling certain criteria to
lease rights without any certainty that their bid will be
demonstrate the ability to finance and implement the project.
successful. These costs are non-refundable if the project
As a rule, qualification requirements include providing
fails to win the tender. Developers must therefore balance
financial information about the developer’s business and
their expenditure against the risk that their bid will be
relevant technical experience. Additional criteria aimed at
unsuccessful. Tender issuers can promote an efficient
maximizing the beneficial impact of the investment on the
market by being transparent and sharing information on
local economy can also play a role in the process, e.g., the
the number of qualified bidders, expectations of whether
nationality of key staff, employees, relationships with local
the tender will be oversubscribed, and information on
suppliers/content providers, etc. 58
future tenders. A second major risk is that competition
becomes so great that margins are eroded to unsustainable
levels, driving developers with lesser resources out of the
market.
58 For a good example of renewable energy tenders generally, and the inclusion
of local content requirements more specifically, in the context of South Africa,
see: Eberhard, A., 2013. Feed-In Tariffs or Auctions, Procuring Renewable Energy
Supply in South Africa, Viewpoint, The World Bank, Washington, D.C.

140 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

 Box 9: South Africa’a REIPPP

South Africa has in place policies and initiatives that are aimed at accelerating growth in the solar PV power sector, including REIPPP and
the Eskom Standard Offer.

REIPPP

South Africa’s REIPPP is split into different bidding rounds. The allocated resources are shown below for Rounds 1 to 3. The decreasing trend
in average PV bid price and the increase in local content is indicative of the policy’s success in incentivizing solar development, although it
remains to be seen whether developers can truly sustain operation at such low prices.a

Under Round 1 of the REIPPP, construction has commenced on 18 large-scale solar PV projects with a combined installed capacity of 630
MW. In Round 2, a total of nine projects with a combined capacity of 417 MW were awarded preferred bidder status and are currently under
construction. An additional six projects with a capacity of 435 MW have achieved preferred bidder status in Round 3 and are approaching
financial close. In 2013, nearly all of South Africa’s solar PV power market consisted of large ground-mounted systems and it is expected
that this market will remain strong.

However, historically there have been a number of delays with the bidding process. In September 2012, the Department of Energy
announced delays to Round 3 of the REIPPP due mainly to difficulty in progressing the first round projects to financial close. The need to
focus on financial closure for projects selected during the first two bidding rounds had a knock-on effect.b

In 2013, the government delayed an announcement on a final list of preferred bidders in the third round of its national renewable energy
programme. This was finally completed in November 2013, more than 12 mosnths later than expected.

The Department of Energy is now in the process of finalising the financial close protocol for the Round 3 preferred bidders.

Allocated Resources for Rounds 1 to 3c

Parameter Bid Window 1 Bid Window 2 Bid Window 3d
Date 5 November 2012 9 May 2013 4 November 2013
MW allocated for Bid Window 632 417 435
Average Bid Price/kWh $0.26 $0.15 $0.097
Local Content 28.5% 47.5% 53.8%

a http://www.esi-africa.com/sas-third-round-bidding-sees-prices-drop-dramatically/

b http://irp2.files.wordpress.com/2011/10/pvsouthafricamap-2013-04-17.pdf

c www.esi-africa.com/sas-third-round-bidding-sees-prices-drop-dramatically/

d www.ey.com/UK/en/Industries/Cleantech/Renewable-Energy-Country-Attractiveness-Index---country-focus---South-Africa

Competitive bidding processes have been successfully
implemented recently in several emerging markets,
including India and South Africa. In South Africa,
the Renewable Energy Independent Power Producer
Procurement (REIPPP) scheme (see Box 9) is a bidding
process in which proponents bid to be awarded a power
sale agreement until a certain MW quota (announced for
each round) is reached. Similarly, India operated a reverse
auction to award successful proponents a PPA as part of
the Jawaharlal Nehru National Solar Mission (JNNSM).
While involving higher preparation costs for the entity
running the tender, and higher risks for the parties
bidding, the competitive bidding process does offer
a greater level of assurance that projects are being
incentivized at the minimum levels required (“revealed
prices”). As such, it can be a good strategy for larger
markets that have established interest and are looking to
scale up installed capacity.
Box 10 summarises key elements of India’s regulatory
support framework, which has evolved over time and used
multiple options, including FiTs, tenders and renewable

12: Policies and Support Mechanisms for Solar PV 141

 Box 10: India’s Evolving Regulatory Support Mechanisms

India has implemented a number of different regulatory support schemes including FiTs, renewable obligations and reverse auctions.

The National Action Plan on Climate Change (NAPCC) of India sets Renewable Purchase Obligation (RPO) targets for each state in India.
This provides a minimum level of the total power that electricity distribution companies need to purchase from renewable energy sources.
Although this is not directly related to solar projects, it requires the states to incentivise the development of renewable energy projects.
Among the states, Gujarat has offered the highest FiT, at 12 Rupees ($0.20), resulting in an installed capacity of 916.4 MW as of 31 March
2014. Below is a short summary of the FiT rates by state awarded by individual state-based solar energy policies.a

Feed-in Tariffs of Selected States

State Feed-in Tariff (in Rupees)
Rajasthan Flat rate of 6.45/kWh (USD 0.106) for 25 years.
Flat rate of 12/kWh (USD 0.198) for first 12years and 3/kWh (USD
Gujarat
0.049) from 13 to 25 years.b
Bihar Flat rate of 9.85/kWh (USD 0.163) for 25 years.
Minimum FiT awarded was 7.40/kWh (USD 0.122) and highest
Punjab
was 8.70/kWh (USD 0.144).
Minimum FiT awarded was 5.5/kWh (USD 0.091) and highest
Karnataka
was 8.0/kWh (USD 0.132).
Tamil Nadu 6.48/kWh (USD 0.107) with an escalation of 5 percent every year.
Andhra Pradesh Fixed 6.49/kWh (USD 0.107).
Minimum FiT awarded was 6.47/kWh (USD 0.107) and highest
Madhya Pradesh
was 6.97/kWh (USD 0.115).

The national Jawaharlal Nehru National Solar Mission (JNNSM),c also referred to as the National Solar Mission, was launched in January 2010
to specifically incentivise the development of solar power as part of the broader national renewable energy targets. JNNSM set a target of
20GW of grid-connected solar power by 2022. It aims to reduce the cost of solar energy-to-grid parity by supporting large-scale deployment
(through a reverse auction scheme in Phases 1 and 2), long-term policy, research and development and domestic production. The develop-
ment road map of JNNSM is divided into three phases, presented below.

JNNSM Road Map and Solar PV Targets

Grid connected, including
Timeline Status as of March 2014
Roof-Top Plan
Phase 1 (2010–2013) 1,100MW 67% of the projects commissioned.
Phase 2 (2013–2017) 10,000MW 750 MW projects selected after bidding.
Phase 3 (2017–2022) 20,000MW Details not yet announced.

In the first phase, selected developers were awarded a PPA with the Central Electricity Regulatory Commission (CERC) through a reverse
auction scheme. The average tariff was approximately US$0.15/kWh, representing a 43 percent decrease on the benchmark tariff approved
by the CERC. It is noted that only 67 percent of Phase 1 projects were commissioned as of March 2014. There are a variety of reasons for this,
including delays to financial close, land acquisition and grid connection issues. Reverse auction was used in Phase 2d through which 10,000
MW are expected to be awarded.

a http://mnre.gov.in/file-manager/UserFiles/guidelines_sbd_tariff_gridconnected_res/salient_features_for_State-wise_solar_policies.pdf

b http://geda.gujarat.gov.in/policy_files/Solar%20Power%20policy%202009.pdf

c Ministry of New and Renewable Energy, Towards Building SOLAR INDIA Available at: http://mnre.gov.in/pdf/mission-document-JNNSM.pdf

d http://seci.gov.in/content/innerpage/phase-ii--batch-i-log-of-documents-releasednotifications-issued.php

142 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

purchase obligations. Also, it shows that in India (as in
many other countries), the regulatory support framework
of the federal/central government may be supplemented by
initiatives of the state/local governments.
12.3.3 MARKET BASED INSTRUMENTS
Market-based instruments accompany quantity-based
mechanisms such as renewable portfolio standards or
quota obligations. They involve the creation of a credit/
certificate, which can be traded in the open market.
Renewable energy credits and carbon credits are the most
common of such certificates.
Market-based mechanisms are appealing because they
promise greater cost-efficiency in reaching a renewables
target set by a government, by providing regulated
entities with greater flexibility to achieve compliance with
renewable energy obligations. However, as discussed in
the two examples below of renewable energy credits and
carbon credits, they can also be complex and demand a
fairly high level of sophistication both from the regulator
and covered entities. They are best suited for markets
where the power sector is already highly competitive and
there is sufficient capacity amongst market players to
implement the system.
Quotas require electricity suppliers (typically utilities) to
derive a specific percentage of the electricity they sell from
renewable sources. Quotas are different from government
targets/political goals because they have legal force and
some form of penalty for non-compliance. For example, if
an electricity supplier sells 100 GWh of electricity per year
and 10 percent of that must be generated by renewable
sources, the supplier would either need to generate or
purchase 10 GWh from renewable facilities.
In some instances, a quota will require that the supplier
purchase renewable power from within a certain
jurisdiction, for example within regional or national
borders. Other quotas require only that the supplier
purchase a certain proportion of renewable electricity,
which can be sourced from anywhere within reach of the
transmission network. Yet another model for quotas is one
that allows for the renewable energy to be “stripped” from
the electricity itself and be traded in the form of renewable
energy credits (RECs), also called green certificates. (More
on RECs is provided in sub-section 12.3.3.1).
A quota system instructs electricity utility companies
to comply with quota obligations, but may or may not
specify how the quota is to be achieved. The utility
may build renewable generation capacity itself or it
may procure it through a tender process. The utility
also may negotiate power prices with IPPs independent
of government, or off-take renewable energy at a FiT
determined by government.
By design, quotas only provide an incentive to produce
renewable energy up to the level stipulated. For a
developer, the major risk of operating in response to a
renewable quota is that the project may not be approved
before the quota cap is exceeded. This is especially an
issue if there is limited transparency on future quotas
or incentives. For this reason, markets with smaller
quotas can struggle to attract interest from private sector
developers and investors, as the business opportunity is
not sufficiently large to justify the transaction costs of
entering the market. In such instances, quotas may need to
be combined with other incentive programs and reforms.
12.3.3.1 Renewable Energy Credits
Market-based instruments encourage investment in
renewable energy by setting a specified quota of renewable
energy to be developed by the market players, usually
utilities or generators. These utilities or generators
can meet their quota obligations either by developing
renewable energy projects themselves or by purchasing
from other market players the “proofs” for specific
amounts of renewable energy electricity, which are
commonly referred to as Renewable Energy Credits
(RECs), Renewable Obligation Certificates (ROCs)
and Tradable Green Certificates (TGCs). As with other
mechanisms, the quota is typically split into technology
types. If there is no technology type split, the market will
seek the cheapest form of renewable energy first, which is
the purpose of an efficient market, yet may not fulfil public
policy goals to support a range of technologies.
12: Policies and Support Mechanisms for Solar PV 143
Under a REC program, a government announces a
quota, or series of quotas (annual or multi-annual), for
renewable energy supply, which electricity suppliers are
obligated to meet over a given time period. Unlike a
traditional quota or renewable portfolio standard though,
the renewable aspect of electricity can be “stripped”
from the energy itself. In other words, a PV power plant
will be awarded RECs based on its generated energy
or installed capacity. These RECs can be traded in the
market separately from the electricity that is generated by
the same facility. Depending on the rules of each specific
market, the covered entity does not necessarily have to
deliver the energy generated by the renewable plant into
the central market. Sometimes the electricity can be sold
to a third-party (which may be physically closer or have
better transmission networks) at prevailing power prices,
while the renewable aspect embodied in the REC can be
sold separately on a dedicated exchange. This allows for
greater flexibility in developing solar PV power plants
where the resource or transmission capacity may be
best, rather than requiring them to be developed within
the physical reach of the covered entities’ transmission
networks, which ultimately are expected to reduce overall
compliance costs.
By setting a quota that increases over time, the demand
for certificates should increase, stimulating the market to
deliver more certificates through investment in renewable
energy. If the market is “short” (i.e., demand is greater
than supply), prices will go up, and if the market is “long”
(i.e., there are more certificates than needed), prices will
go down. In theory, the fluctuating price of RECs provides
a “real-time” calibration of market needs and guides new
investment prospects.
In order to enforce a REC scheme, penalties are required
to ensure compliance by the off-taking utilities. Penalties
need to be considerably higher than the expected value
of certificates in order to motivate quota compliance. If
penalties are set too low, they will become a price ceiling.
In practice, it has proven challenging in many situations
to match a solar PV project developer’s need for long-term
revenue certainty with the short-term demand and price
144 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
signal provided by RECs, which in many markets are only
traded in significant volume a few years in advance. A
developer seeking to hedge price risk by selling their RECs
forward over the lifetime of the power project will often
have to accept a price well below the current forward
price, if they are able to find a buyer at all.
The REC model has been popular in the United States
(with multiple state and voluntary schemes in existence)
and the United Kingdom (with varying degrees of success).
Several emerging markets, including India, Romania, and
El Salvador have introduced REC trading schemes as well.
Market-based mechanisms represent significantly more
risk for developers than other incentives. In small markets,
if there is insufficient active trading (low liquidity), then
REC markets are especially prone to experience boom
and bust cycles. Banks are likely to highly (even entirely)
discount the potential value of RECs unless they are sold
forward to a highly credit-worthy off-taker, effectively
making them pure “upside” for the developer, i.e. a
potential benefit to a project that cannot be borrowed
against in the same manner as power revenue. If REC
markets evolve and deepen, they may become bankable,
but it is wise for developers to approach RECs with some
caution.
12.3.3.2 Carbon Credits
Unlike the other incentives described here, carbon credits
are an indirect form of support for solar energy, primarily
designed to reduce greenhouse gas (GHG) emissions.
Electricity generated by renewable facilities replaces
electricity generated by energy sources, which utilize fossil
fuels and release CO2 emissions. The renewable facility is
awarded carbon credits for the avoided CO2 emissions.
Carbon markets seek to price GHG emissions and
incentivize their reduction. However, in the markets that
have (or had) a robust carbon price, namely the EU-ETS
and the state of California, that price has recently been
insufficient to act as the main driver for solar energy
projects because the price for carbon is driven by the
lowest-cost technology (typically energy efficiency or fuel-
switching).
The Kyoto Protocol’s Clean Development Mechanism
did briefly provide an incentive for renewable energy
(although very little solar)59 in developing countries, but
for various reasons, this incentive effectively no longer
exists, and it has not yet been replaced by national carbon
markets. However, numerous countries, provinces, and
cities are considering or beginning implementation of
carbon pricing policies, including South Africa, Chile,
and China (see the World Bank’s Partnership for Market
Readiness for examples).60 In addition to carbon credit
trading, carbon taxes or reductions in fossil fuel subsidies
are also under consideration to incentivize energy
efficiency and lower emissions.61 Thus, while the price
of carbon in most countries is absent or too low to be
the main driver for solar energy at present, there is a
possibility that carbon pricing will again become more
relevant in the future.62
12.3.4 TAX INCENTIVES
Tax incentives are a common tool to promote solar and
other renewable energy, including tax credits for capital
expenditure, reduced Value-Added Tax (VAT), reduced
corporate income tax, import/customs and excise tax
holidays, accelerated depreciation, and (though not
exactly a tax incentive) relaxed rules on foreign exchange
borrowing and foreign investment.63 Due to the differing
tax bases and nature of taxes levied, the tax incentives,
which have been successful in developed economies
such as the United States, may or may not be relevant to
emerging markets.
59 As of February 2015, 369 out of 7,598 registered CDM projects were solar, less
than 5%. See www.cdmpipeline.org.
60 The Partnership for Market Readiness (PMR), for which the World Banks
acts as Secretariat, trustee and delivery partner “supports countries to
prepare and implement climate change mitigation policies—including carbon
pricing instruments— in order to scale up GHG mitigation. It also serves as a
platform where countries share lessons learned and work together to shape
the future of cost-effective GHG mitigation.” See www.thepmr.org for more
information.
61 For more analysis on this, see Moarif, S and Rastogi, N. “Market-Based Climate
Mitigation Policies in Emerging Economies,” Center for Climate and Energy
Solutions (C2ES). December 2012.
62 See “2014 State and Trends of Carbon Pricing,” The World Bank (Publication
88284). May 2014
63 For an overview of numerous countries tax incentives, see for example “Taxes
and incentives for renewable energy,” by KPMG (2014). Available at kpmg.com/
energytax.
Developers should undertake a thorough review of the
local tax laws with qualified professionals to ensure
they take advantage of all potential tax efficiencies. Tax
benefits are often difficult to find, and it can be challenging
to determine the criteria for eligibility and to understand
the related administrative procedures. Appropriate time
to consider local tax issues should always be built into the
project timeline.
The largest market with tax credit support for solar PV
projects is the United States. The U.S. investment tax
credit provides owners of a project with a 30 percent tax
credit on the capital expenditure of a solar PV project
to offset against their tax liabilities. The United States
also offers wind developers a production tax credit based
on the energy generated rather than the initial capital
investment. In order to take advantage of either tax credit,
the project owner must have a substantial or tradable
tax burden. While this model has been quite successful
at incentivizing solar power (both distributed and utility-
scale) in the United States, it is generally recognized that
the form of the incentive generates significant transaction
costs and is attractive only to investors with a large
tax burden. Further, it would be of limited relevance
in economies where collection of corporate income tax
remains low. A similar outcome could be achieved with a
capital grant (see Section 12.3.5 below on soft loans).
Other tax policies that reduce the amount of tax paid
on equipment or reduce the rate of tax on corporate
profit have been utilized in emerging markets, including
Thailand and India. An important consideration is import
duties. Some countries have elected to eliminate them
or reduce them to reduce the cost of renewables. Other
countries may have very high import duties whereby the
motivation for the latter can be the protection of local
industries (or the promotion of their emergence).
As with all renewable energy policies, there is a risk of
policy expiration, which can be mitigated by closely
following policy discussions and considering project
economics should the incentive be phased out.
12: Policies and Support Mechanisms for Solar PV 145
12.3.5 SOFT LOANS
Loans with low interest rates and other concessionary
terms, such as extended tenors or risk sharing, have
also been deployed by governments to support solar PV
development. Such loans are typically available only
to a small volume of projects and only through certain
designated financial intermediaries, typically a national,
regional or multilateral development bank. To obtain
concessionary loans, certain criteria must be fulfilled,
potentially constricting the type of technology employed,
or the contractors to be employed in the development of a
project. Soft loans are often part of a broader renewable
energy policy platform that also includes other incentives,
such as a guaranteed Feed-in Tariff (FiT).
National governments that play a strong role in
the banking sector often take a more policy-driven
perspective, seeing subsidized loans as a direct method of
achieving renewable energy targets. For example, China
has stimulated renewable energy development through
state-mandated concessional loans.64 Depending on how
soft loans are implemented, they can be a relatively cost-
efficient means of achieving a policy goal.65
Soft loans are generally offered only at early stages of
a technology’s introduction into a new market. Unlike
a policy-based incentive, which is applied uniformly
across all projects meeting certain criteria, soft loans
require individual, project-specific due diligence to avoid
financing projects that will not be well-implemented or
operated as efficiently as possible. As such, soft loans have
relatively high transaction costs. The use of soft loans to
support broader market development is typically achieved
through financial intermediaries at a large scale, as the
use of a wide-reaching banking instrument is able to bring
down transaction costs associated with individual loans.
This approach becomes difficult in particular markets
where loan provision is limited to a single or small set
64 For more, see B. Shen et al., “China’s Approaches to Financing Sustainable
Development: Policies, Practices, and Issues,” Lawrence Berkeley National Lab
paper LBNL-5579E. June 2012.
65 For one assessment of policies in India, see G. Shrimali, et al., “Solving India’s
Renewable Energy Financing Challenge: Which Federal Policies can be Most
Effective?,” Climate Policy Initiative. March 2014.
146 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
of financing entities and it is not possible to engage the
broader commercial banking sector.66 Soft loans can play
a role in building interest in solar technology in new
markets, and offer few risks to developers, other than
constraints that are typically presented clearly in policy
statements and loan documents.
12.3.6 CAPITAL GRANT SCHEMES
Capital grants awarded through a tender or
application process have also helped support solar PV
projects, especially in the early stages of PV power
commercialization when its costs were very high, the
awareness of its characteristics limited, and the perceived
risks high. Grants can be awarded based on a fixed
incentive amount per MW or as a percentage of capital
cost. Capital grant schemes are often introduced by
governments on a temporary basis or for limited capacity,
with the intention of providing market traction for a
specific technology that is unproven or considered high-
risk.
Capital grants present few risks for developers or
financers. However, as with other incentives offered on
a short-term basis, grants can create a “boom and bust”
cycle, with prices for services and equipment bid up in
the period prior to the incentive expiration, only to crash
when it is no longer available and the number of profitable
project opportunities is reduced. To mitigate these business
cycle risks, developers can consider longer-term contracts
with equipment suppliers and service providers and seek
out opportunities (perhaps in niche markets) where solar
projects are viable with no support.
The “1603” federal cash grant program introduced in
the United States in 2009 is one example of a large-scale
capital grant program for solar PV projects, introduced
in recognition that the tax-based incentives typically
provided were ineffective during a recessionary period.67
66 The Green Climate Fund’s stated intention to work directly with the private
sector raises the interesting possibility of combining multilateral donor funding
with local implementation, but is still in early stages.
67 “1603 Treasury Program,” section of the Solar Energy Industry Associations
website, available online at http://www.seia.org/policy/finance-tax/1603-
treasury-program
India has also provided capital grants at both the national
and state level over many years.
12.4 FURTHER GUIDANCE TO DEVELOPERS ON
REGULATORY SUPPORT FRAMEWORKS
Developers need to be aware of secondary regulations
that may influence project transaction costs. For example,
a lengthy waiting period for generation permits could
significantly delay the start-up of the new plant, and
thus create financial losses for the developer. Another
example is power quality regulations, which may include
frequency regulation (defined by a grid code) that
applies to all electricity producers. While power quality
requirements are not solar specific, they can make it more
difficult for sources of intermittent power, such as solar,
to meet criteria for grid integration.68 Further examples
of regulations that are secondary to solar, including
important aspects of the grid connection process, are
covered in Section 8 on Permits and Licenses.
Renewable energy policies need to be considered in the
context of the broader power market in which the project
is being developed. Is the market fully de-regulated with
generation, transmission, and distribution each operated
independently? Or is the project being developed for a
vertically-integrated, state-owned utility through a Public
Private Partnership?
In markets where a state-owned entity controls generation,
the major opportunity for a developer is likely to be in
response to a public tender or a Public Private Partnership,
such as a Build-Operate-Transfer (BOT) or a Build-
Own-Operate (BOO) with a PPA. The structure of the
power market defines the types of project development
opportunities available. However, while having this
broader context on the structure of the relevant power
market is critical, this topic will not be discussed further
68 In many emerging markets, where maintaining the power supply is the
predominate concern and the penetration of intermittent renewables such
as solar is low, power quality and variable energy integration may not be top
concerns. However, as the share of renewables grows in global markets, power
quality may become more of a priority.
here, as the purpose of this guide is to focus on aspects of
project development unique to solar PV power plants.69
Given how rapidly solar PV power costs have dropped in
the last five years (2009–2014), it is especially important
for solar energy developers to consider the possibility
that solar energy incentives will evolve as well, either
through anticipated policy expirations and adjustments or
unexpected policy changes. By the end of 2014, most FiTs
in Europe were reduced substantially from the peak levels
observed in 2008, reflecting the reduction in capital cost
of a solar PV power installation. Interestingly, thus far,
it is governments in developed economies (such as Spain,
Italy, and Greece) that have made retroactive changes to
pre-existing support mechanisms in order to reduce levels
of support provided to existing solar PV projects. While
retroactive changes of this kind are not common (and, in
the case of the countries cited above, were influenced by
the strained financial situation of a number of European
countries in the global recession after 2008), it is wise to
consider the risk that policies may change.
If the share of renewable energy in a market coming
from variable output power plants is high or expected
to become high (over 5–10 percent), it is important to
understand not only the support policies for solar power
per se, but also the policies that have an impact on the
overall power system, including the grid development,
investment in storage and flexible power generation,
and demand-side management. In other words, support
mechanisms for solar PV power cannot be considered
in isolation because integration of solar and other types
of renewables into a given power system and electricity
market creates additional challenges that may affect
a developer, if the level of penetration of intermittent
renewable power grows to high levels.
69 While not the focus of this publication, electricity market structure and reform
is a priority topic for the World Bank Group. World Bank’s Energy Sector
Management Assistance Program (ESMAP) and the World Bank Energy
Practice Group have many publications and activities covering this important
issue from the perspective of the government/regulator. Many have a specific
country or regional focus.
12: Policies and Support Mechanisms for Solar PV 147
 Leveraging Financial Incentives Checklist

The checklist below identifies key considerations for developers

seeking to access support mechanisms for solar PV projects in
any market.

 Review structure of electricity market, dynamics of energy

pricing, and potential for near-term changes in market
prices.

 Review energy generation regulations, including specific

policies for renewables and evidence of application in
current market.

 Identify specific support mechanisms for utility-scale

solar PV power projects, evidence of their utilization and
government adherence to terms in the current market,
as well as project qualification criteria, application cut-off
dates, and other potential risks.

 Understand the grid regulatory regime, including integra-

tion of regulatory and approval processes for new genera-
tion projects using renewables, specifically solar PV power
projects.

 Develop a PPA model based on best understanding of viable

public incentives.

 Mitigate policy risks by considering project economics

without incentives, which may include hedging on market-
based instruments and/or political risk insurance.

148 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

 Power Purchase Agreements
The PPA is the most important
agreement for financing a
solar PV project. All other
related agreements—the loan
agreement, grid connection
agreement, and EPC contract—
should be aligned with the PPA.
13
13.1 POWER PURCHASE AGREEMENT OVERVIEW
Solar PV power plant projects generate revenue by selling power.
How power is sold to the end users or an intermediary depends
mainly on the power sector structure (vertically integrated or
deregulated) and the regulatory framework that governs PV
projects. Power can be sold either through a long-term PPA or
through participation in an open market (“merchant” plant).
At the writing of this guide (early 2015), there were only a few
merchant solar projects in the world; the vast majority of PV
power plants are developed using longer-term PPAs. Merchant
PV power plants are rare because PV costs typically result
in power that is more expensive than other energy sources
and excessively risky to financiers. Also, regulations (support
mechanisms) promoting PV technology and other renewables
are usually based on some form of long-term PPA. However, as
PV costs continue to decline, merchant PV plants may become
more common. For example, in 2014, IFC and other partners
financed the first merchant solar PV project in Chile, the La
Huayca II project, with no subsidy and no PPA. Merchant plants,
depending on how the power sector is structured, may be able to
sell both energy and capacity (the latter in a day-ahead market).
Including La Huayca, as of early 2015, IFC had financed four
large-scale PV projects in Chile, of which three were merchant
projects and only one had a PPA. These projects are described
briefly in Table 19.
This section looks at the key elements of the typical PPA for
large-scale PV projects, and describes how small solar power
plants (distributed generation) can utilize similar contractual
arrangements.
PPAs are legally binding agreements between a power seller
and power purchaser (off-taker). The party that is selling the
power is, in most cases, the owner of the solar PV plant. The
purchaser of power could be a power company, power trading
company, or individual consumer, depending on the structure
13: Power Purchase Agreements 149
 Table 19: IFC-financed, Utility-scale PV Plants in Chile
Project Name Description
The Project consists of the construction and operation of an approximately 100 MW solar PV power plant
Sun Edison Cap in the municipality of Copiapo in Chile’s Atacama Region. Energy produced from the project will be injected
PPA (2014) into the Chilean Central Interconnected System. The project has a 20-year Contract for Differences with
Compania Minera Del Pacifico S.A., an iron ore mining company.
The Project is to expand the existing 1.4 MW La Huayca I PV solar power plant, to a total capacity of 30.5
La Huayca II
MW. The plant is being developed by Selray Energias Ltda. and would be the first large-scale merchant solar
Merchant (2014)
project in Chile’s SING (Northern Interconnected Electricity) system.
The Project consists of the construction and operation of a 141 MW-ac solar photovoltaic power plant in the
Luz del Norte
municipality of Copiapo in Chile’s Atacama Region. Energy produced from the project will be injected into
Merchant (2014)
the Chilean Central Interconnected System at prevailing spot market prices.
The Project consists of the construction and operation of an approximately 50 MW solar PV power plant in
Sun Edison MER
the municipality of Copiapo in Chile’s Atacama Region. Energy produced from the project is to be injected
Merchant (2015)
into the Chilean Central Interconnected System at prevailing spot market prices.

of the power market. For renewables (including PV) that
are supported by regulatory mechanisms (see Section 12),
the most common option is to sell all electricity generated
to a power company (vertically integrated, transmission
or distribution), often wholly or partially government-
owned. However, a solar PV plant may also sell electricity
to a trading company or a consumer, provided that this
is allowed by market rules. In the latter case, wheeling
charges may have to be paid by one of the two parties of
the PPA.
The PPA is the most important agreement for financing
a solar PV project. All other related agreements—the
loan agreement, grid connection agreement, and EPC
contract—should be aligned with the PPA. The PPA should
define all of the commercial terms affecting the sale of
electricity between the two parties, including the date the
project will begin commercial operation, the schedule
for delivery of electricity, the tariff, the volume of energy
expected to be delivered, payment terms, penalties for
underperformance on either side, and provisions for
termination.
As such, the PPA is the principal agreement that defines
the revenue stream, and thus the credit quality of an
electricity-generating project, and is therefore a key
instrument of project financing. A robust PPA helps de-risk
projects by clearly specifying rights and responsibilities,
and creating greater certainty around the revenue stream.
Off-taker credit-worthiness is a factor whose importance
cannot be overemphasized. It is one of the most critical
elements considered when developing a PPA and the focus
of thorough due diligence.
PPAs may be standardized and non-negotiable (except
possibly for the tariff); standardized to provide an
initial framework for negotiations; or open to bilateral
negotiations. PPAs for solar PV projects have historically
been shaped by the supporting regulatory framework, as
described in Section 12. For example, it has been common
for the tariff, off-take terms (take or pay), and contract
duration to be pre-defined by a national or regional policy
(see sub-section 12.3).
While the classic PPA model of a utility off-taker paying
a fixed price to the producer is likely to remain common
in the coming years, developers and financers should stay
abreast of market developments, and consider both the
risks and opportunities introduced by changes in pricing
and business models. Box 11, at the end of this section,
considers the recent rise in opportunities for distributed
generation projects, sometimes referred to as “Commercial
PPAs.”
Refer also to the checklist at the end of this section for
basic requirements specific to PPAs for solar PV projects.

150 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants

The remainder of this section describes the key elements
of a typical PPA. There are numerous sources that readers
can consult for more in-depth coverage,70 as well as several
brief overviews on the topic.71
13.2 MAIN POWER PURCHASE AGREEMENT
TERMS
The PPA sets out the terms of the power purchase,
including the tariff, the volume of power to be sold,
and the duration of the agreement. Some of the key
commercial, legal, and technical terms to be considered
while reviewing a PPA are described below. Where
appropriate, these descriptions include comments on the
potential risks associated with the key terms.
13.2.1 TARIFF OF ENERGY SOLD
The methodology for calculating the electricity price
will depend on the market within which the project is
operating and the prevailing regulatory regime. Under
a FiT regime, a flat-fixed rate price could be offered for
the life of the project. Alternatively, the tariff may be set
through a reverse auction, negotiated or based on power
market parameters (e.g., marginal cost of power supply).
The tariff may be adjusted based on an index that reflects
annual inflation and foreign exchange fluctuations. If
indexation is not included, the developer should assess
the risks associated with inflation and changes in foreign
exchange rates. Long-term operating costs for solar
projects are very low, making inflation less of a concern
than for other technologies, but should still be considered.
In markets where it is difficult to obtain long-term
financing in local currency, foreign exchange rates reflect
substantial risk exposure. Foreign exchange is also a
substantial risk linked to repatriation of profits.
Tariffs for solar power projects may continue to be
determined through regulations, but as the cost of
70 The World Bank Group has publicly available PPA resources at http://ppp.
worldbank.org/public-private-partnership/solar-power-energy
71 For example, see “Understanding Power Purchase Agreements,” funded by the
U.S. government’s Power Africa initiative, available at no cost online at http://
go.usa.gov/FBzH
electricity from PV power approaches that of conventional
power tariffs (often referred to as “grid parity”), tariff
setting may change. For example, in South Africa, the
average solar PV tariff fell 68 percent, from over US$0.34/
kWh to $0.10/kWh between Round I auctions conducted
over 2011–2012 and Round 3 auctions in 2013.72 Tariffs
around $0.10/kWh were also reached in other locations
around the world, such as India and Brazil, and fell still
lower to $0.06/kWh in an auction in Dubai.73
Also, as the solar PV market evolves, PPAs are likely to
introduce increasing levels of exposure to market risk. For
example, in 2013, IFC financed the Aura Solar Project in
Mexico, a 38.6 MWp greenfield PV project with a 20-
year PPA in which the off-taker pays a tariff determined
by marginal cost of power supply, with no subsidy. Aura
is the largest PV solar power plant to be built to date in
Mexico.
The PPA also specifies the expected installed capacity of
the solar PV project (in MW) and the predicted annual
electricity production in MWh. The installed capacity of
a solar PV plant is simply the maximum power of the PV
plant, as specified and warranted by the PV plant supplier.
The predicted annual energy production is estimated
based on the project’s installed capacity, solar irradiation,
and the resulting capacity factor or performance ratio,
as described in detail in Section 5 on Energy Yield. The
predicted annual production should take into account
seasonal variations in solar irradiation and system losses
to the point of metering. Also, panel degradation loss
should be taken into account reflecting how efficiency and
annual energy production may be reduced year-on-year
over the life of the plant.
An accurate annual production prediction gives the off-
taker comfort in knowing how much energy it will receive
and the seller comfort knowing how much it can sell. The
72 Ebehard, A., Kolker, J. and Leigland, J. “South Africa’s Renewable Energy
IPP Procurement Program: Success Factors and Lessons.” Public-Private
Infrastructure Advisory Facility (PPIAF) of the World Bank. May 2014.
73 Upadhyay, A. “Dubai Shatters Solar Price Records Worldwide — Lowest Ever!”
Cleantechnica Website, November 29th, 2014.
13: Power Purchase Agreements 151
level of accuracy required of this prediction is dependent
on the market in which the project operates. For small
distributed solar PV installations operating under a FiT
regime, it may be acceptable to use software tools made
available by the regulator. However, utility-scale projects
should include a professional independent energy yield
assessment, produced and/or verified by an experienced
consultant with a track record of producing “bank grade”
data, and a confidence interval of at least P75, if not P90.
The project’s actual energy generated will be based on
meter readings. However, the energy yield prediction gives
both parties a reference against which any anomalies in
production can be checked and is sometimes used as a
back-up to meter readings in the event of meter failure or
discrepancies. Thus, energy yield prediction is important
both during project planning and during operation.
Most solar and other renewable energy, as non-
dispatchable forms of power, are sold on an “obligation
to take” or “take or pay” basis, whereby all power they
generate must be accepted by the grid. If this is not the
case, then the volume of power being transacted should
also be specified, with clarity on any penalties due should
that volume of power not be delivered.
13.2.2 PPA DURATION
The PPA specifies the expected start and termination dates
of the agreement. The duration of the PPA should be equal
to and ideally longer than the period of time required to
repay the project’s lenders and to meet expected equity
returns. In some cases, the duration will be determined by
the regulatory support mechanism under which the solar
PV project is developed; in other cases, the PPA duration
can be negotiated. PPAs covering a 15- to 25-year period
are desirable for PV plants and are relatively common. The
longer the term of the PPA, the less exposure the project
has to future changes in power prices, and the more secure
its revenue stream. A sufficiently long PPA duration is
especially critical for solar PV plants because the vast
majority of costs are incurred up front and must be repaid
over the project’s life. PV power plants are expected to
operate with fairly predictable degradation rates for 20
152 A Project Developer’s Guide to Utility-scale Solar Photovoltaic Power Plants
years or more, which is also suited to PPAs with long
duration.
13.2.3 RIGHTS TO ENVIRONMENTAL CREDITS
Some regulatory frameworks may offer environmental
credits (i.e., RECs) as part of an incentives package for
new solar PV projects. The developer should determine the
eligibility of the PV project for receiving environmental
credits and ensure the assignment of rights to any credits
linked to the project is clearly specified in the PPA. This
should include the term for which these rights will be
assigned (usually the project lifetime or duration of
project eligibility), as well as provisions for the assignment
of environmental credits that may potentially become
available in the future.
13.2.4 CONDITIONS TO COMMENCEMENT
“Conditions to commencement” or “conditions
precedent” define conditions that must be satisfied by the
developer prior to commencement of the PPA term.
These conditions generally include securing the required
project permits/approvals, the execution of an O&M
agreement (covering civil works for land maintenance,
module and balance of system routine inspections),
a secure grid connection, and issuance of a takeover
certificate.
The conditions to commencement set out a common
understanding of the requirements of the project before
commissioning. If the project developer does not satisfy all
conditions, the off-taker may have the right to terminate
the PPA. However, conditions to commencement often
define requirements for the developer that, if not met,
might leave the project legally exposed. Therefore, it is in
all parties’ interest for the conditions to commencement to
be met.
13.2.5 GRID CONNECTION AGREEMENT
The PPA will typically reference and summarise the terms
of the Grid Connection Agreement, often in an annex.
It is very common for grid connection to be delayed,
and where the off-taker or grid company is responsible,